Delhi HC Sets Aside ₹55 Lakh Arbitral Award To Budhiraja Electricals, Rejects Clause 10CC-Based Damages

The Delhi High Court on 22 May set aside arbitral awards granting Rs. 38.96 lakh towards escalation and Rs. 16.23 lakh towards loss of profits to Budhiraja Electricals in its dispute with the Public Works Department, Government of NCT of Delhi.

Justice Harish Vaidyanathan Shankar held that an arbitral tribunal cannot use Clause 10CC of the General Conditions of Contract as a substitute for proof of actual loss once it finds the clause inapplicable to the extended period, and reiterated that damages must be proved under Section 73 of the Indian Contract Act, 1872. The Bench held:

“Mere adoption of a contractual formula, particularly one which itself stands excluded by the terms of the contract for the relevant period, cannot substitute the requirement of evidence. By treating the formula under Clause 10CC of the GCC as a proxy for proof of damages, the learned Arbitrator has effectively dispensed with the fundamental burden resting upon the claimant to establish actual loss and its quantification. Such an approach renders the Award legally vulnerable”.

The dispute arose from a tripartite agreement between the Public Works Department, Government of NCT of Delhi, Parnika Commercial & Estate Pvt. Ltd. and Budhiraja Electricals for electrical works relating to construction of the EDP Cell-cum-Referral Clinic/Administrative Block-cum-OPD Block and Additional Basement Parking at G.B. Pant Hospital, New Delhi.

The work commenced on 11 January 2006 and the parties fixed the completion date as 10 July 2008. Budhiraja Electricals completed the work on 30 November 2011 after delay, which the department later regularised without imposing compensation. Disputes arose between the parties over escalation under Clause 10CC of the General Conditions of Contract, compensation for prolonged deployment of staff, loss of profitability, withheld amounts, and interest.

The High Court appointed a sole arbitrator under Section 11 of the Arbitration Act after the disputes were referred to arbitration. The arbitrator awarded Budhiraja Electricals Rs. 38.96 lakh towards escalation under Claim No. 3 and Rs. 16.23 lakh towards loss of profits under Claim No. 6.

The Public Works Department challenged the award under Section 34 of the Act and contended that Clause 10CC barred escalation for work executed during the extended contract period and that Budhiraja Electricals failed to prove actual loss.

Budhiraja Electricals defended the award and submitted that the delay occurred due to the department's actions and that the arbitrator correctly applied Section 73 while using Clause 10CC only as a method to compute damages.

The High Court examined Clause 10CC and held that it operated as a “complete and self-contained code” governing escalation and restricted such claims to the original contract period.

It found that both Budhiraja Electricals and the arbitrator accepted that no contractual entitlement to escalation survived beyond the stipulated completion period. Despite this, the arbitrator applied the Clause 10CC formula to compute damages without independently establishing proof of actual loss under Section 73. It held:

“This approach, in the considered view of this Court, amounts to a clear departure from the contractual regime agreed between the parties”.

The Court also held that the arbitrator failed to examine evidence of actual loss or material showing increased costs before awarding Rs. 38.96 lakh. It observed:

“The learned Arbitrator, however, failed to examine whether the essential ingredients necessary for sustaining a claim under Section 73 of the ICA, namely, proof of actual loss and a demonstrable causal nexus between the alleged breach and the loss claimed, stood established on the basis of evidence led before the learned Tribunal. The Award is conspicuously silent with respect to any evidence demonstrating the actual increase in costs or substantiating the quantified figure of Rs.38,96,175/-".

The Bench further held that an arbitral tribunal cannot rewrite contractual limits or dispense with proof of damages and found that the findings on escalation and loss of profitability suffered from patent illegality. Therefore, it set aside the award insofar as it related to Claim Nos. 3 and 6 along with the corresponding interest.

Accordingly, it directed that enforcement proceedings would continue only in respect of the surviving portions of the award and asked the parties to place fresh calculations on record.The matter is listed to be heard again on 11 August 2026.

Appearances for petitioner (Public Works Department): Advocates Dhananjaya Mishra, Navneet Dogra, Bhargav Verma.

Appearances for respondent (Budhiraja Electricals): Advocate Kirti Mewar.